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The forex markets are giving in to widespread fear about the Greek debt. We are seeing a full market reaction – a perfect risk aversive behavior, with one huge loser – EUR/JPY. Will it continue plunging?

Growing worries about the never ending Greek debt problems are strongly reflected in the market. I wrote about the 3 reasons why EUR/USD will be hit hard this time. So, the Euro, the  currency used in Greece, continues to fall. The failure of European leaders to end this crisis sends EUR/USD toward the 2010 low of 1.3267. But the Euro is not alone:

The currencies that benefit from fear are the US dollar and the Japanese Yen. The dollar is rising across the board. The British Pound is dropping despite excellent figures from Britain – A strong rise in prices, as seen in the Halifax HPI and a 1.3% rise in Manufacturing Production, double than expected, are only enough to ease the fall.

USD/CAD parity – that was reached earlier this week, is fading away. The pair is getting close to 1.01 despite having all the reasons to fall. Also the Australian dollar, which got good (though expected) job figures are dropping on the dollar’s strength.

Yen enjoys Chinese talks

Now let’s look at the other currency that benefits – the Japanese yen. The yen enjoys the same status as the greenback – the “safe haven” currency that is sought in times of crisis. That’s not the only reason pushing the yen.

Chinese officials are hinting that they will release the tight Yuan peg and let it strengthen. More expensive Chinese goods mean better competition conditions for Japanese goods. This also boosts the yen: USD/JPY is below 93.

EUR/JPY tumbling down

Take EUR/USD and USD/JPY and you get an accelerated reaction in the cross: EUR/JPY, a popular cross, dropped below the 125.20 line that held it just yesterday and also worked as a resistance line twice in February and March. The pair descended quickly to 123.67 and the fall continues.

The next line of support is at 121, followed by 119.60, which is the year-to-date low for the pair. See also this analysis for the pair on Forex Magnates.